Free Online Article Directory. For Article Authors & Publishers
What are Mortgage Points? Do I Want to Pay Them?
If you don't understand the concept of points, you have come to the right place. In simple terms, points are paid by a borrower to a lender to reduce the rate on a mortgage. A point represents 1% of the face value of the loan. In other words, if you are asked to pay 1 point, you would have to pay $1,000 on a $100,000 loan.
Lenders take these upfront payments to reduce the long term cost of the loan. There are different ways of calculating the benefit of a point, depending on the lender, but an example would be if you paid 1.5 points to reduce your loan from the posted rate of 6.25% to 5.875%, or to 5.375% if you paid 2 points.
The longer you will live in the home, the more sense it makes to pay points; you also have to decide if you can afford to pay the points. If you have to borrow to pay the points, you will most likely lose any advantage since you will have the additional interest. For many first time home purchasers, points are not a good idea, since they will want to move to a different home in the near future.
Points should be viewed as an investment in the mortgage. Paying 1.5 points to reduce your loan from 6% to 5.5% is an investment, but is it a good one? You are paying some of your interest in advance, effectively.
There are many sites on the internet that will help you calculate how much you can save in monthly home loan payments by paying upfront points, based on the length of the loan or you can take the easy way out and call a mortgage professional to do it for you.
The $100,000 loan we were talking about would require $1,500 in points to reduce the rate to 5%. How do you find the breakeven point in this scenario, based on the different rates? A $100,000, 5.5% fifteen year mortgage will cost $599.55 per month. The monthly payment for a 30 year. 5.5% loan is $567.79 a month.
The lower rate mortgage is $31.76 a month lower, but you have to pay points to get this lower payment. $1,500 divided by $31.76 is 47.23 months, or almost four years. If you don't plan on living in your home for this length of time, you will not benefit from paying points.
However, after the 47.23 months have passed, each month payment is a savings. If you, unlike most homeowners today, remain in your home for the full thirty years, you would have saved $31.76 over those years, which is a total savings of $9,933.58.
If you've ever been intimidated by the idea of investing, it's time to find a savings solution that offers minimal risk with the potential for high rewards.
When you're looking for an investment vehicle that couples high rewards with minimal risk, savings and money market accounts provide you with solutions.
Most of us realize the importance of having medical insurance to cover any medicine and health care, but treatment from dentists is often not included benefits. However, getting the good dental care is important for people of all ages. In order to be able to afford these sometimes costly treatments, it is important to have the good dental insurance unless one can afford to pay for these treatment out of pocket. Treatment from dentists can be covered by specialized policies known as dental insurance.
By choosing great term life insurance California parents are far more capable of ensuring a stable environment for their children in the event that they pass unexpectedly.
![[Valid RSS feed]](http://www.articlelisted.com/images/icon_Rss.png "XML Feed For RSS"){kind=icon}
Kathy Stearns's Author Feed
Print This Article
Add To Favorites 